by Tahir Mahmoud (News & Analysis, Crescent International Vol. 52, No. 12, Rajab, 1444)
Political and economic developments frequently reignite debate on the centrality of the US dollar as the primary global currency. Those who have followed this discussion over the past decade might find such debate sound like a broken record.
Proponents of the US dollar keep pointing to the fact that it is still the currency of choice for most international trade even after years of financial experts predicting its demise. Its opponents respond by pointing to cataclysmic economic and political events to highlight the “unprecedented” trouble the US dollar is in today.
In the debate about the US dollar’s role as the primary global reserve currency, it is important to keep three aspects in mind to avoid an exaggerated conclusion about its demise or its continued dominance.
First, dollar has been the world’s reserve currency because of American political and military global dominance. Such domination has enabled the US to enforce the so-called trust aspect into the longevity of its currency, economic system, and laws. Thus, American imperialism sustains the dollar.
The second aspect is that the US dollar had an advantageous start in 1944 at the Bretton Woods Conference. In 1944, most of the world was just emerging from the hugely destructive war initiated by the Europeans, dubbed as the second “world” war. Exhausted by the war and now also lacking political stamina, many ruling elites of several important countries were pressured by the senior US treasury official Harry Dexter White to peg other currencies to the dollar.
The gold standard was to be discarded in favour of the dollar which would essentially become the new “gold.” While this was only realized in 1971 when then US President Richard Nixon announced that the dollar would no longer be backed by gold, by then it was too late to do anything about it. The US dollar had become the global currency.
The third and probably most important aspect to consider is that the dollar’s demise is a process, not an event, unless there is a cataclysmic event such as a world war involving nuclear weapons.
Thus, it can be reasonably argued that as US hegemony is eroded and a multipolar world order becomes a reality, the US dollar will not enjoy the same status as it did during the hay-days of US power projection. This is almost becoming a mainstream conclusion now.
While the general parameters regarding erosion in the dominance of the dollar are widely discussed, the specific mechanics of what needs to be done to disarm Washington from utilizing its currency as an economic weapon is rarely debated in depth or plain language.
Currency is supposed to be a medium of exchange to facilitate trade. If one currency becomes dominant as a medium of exchange, its popularity, usage, and strength grow because global demand for it increases. Therefore, for other currencies to begin to neutralize the weaponization of the US dollar, trade between regional countries using local currencies must become more widespread. This will automatically increase demand for non-dollar currencies. For trade to grow, participating entities must produce goods and services which trading parties need.
Currently, mass scale manufacturing exposes trading entities to use the US dollar and abide by American financial regulations and laws at some level even if the scale is not huge. The US regime has set up a global financial system where international trade, which is an essential part of a modern economic system, cannot take place without some exposure to the US financial system. Ironically, it is this feature of US policies which is contributing to the long-term weakening of its currency. The overuse of sanctions and other economic warfare tools are motivating powerful economic players to look for ways to decrease dollar exposure.
America’s state institutions know that if mass scale trade between vital economic sectors shifts to other currencies, the dollar will be marginalized. Considering the US political and economic track record, it is not far-fetched to conclude that if a significant portion of mass scale businesses turn to other currencies to settle transactions, they will face the full brunt of the US financial system via its laws and regulations.
Thus, it will be difficult for vital industrial scale businesses of developing economies to openly ditch the dollar. They will face politically driven pressures which will render them economically non-competitive.
Creating a well organized small and medium business ecosystem is, therefore, key to disarming Washington. American institutions are less likely to pressure furniture manufacturers in Ghana or Kenya to trade in the US dollar but oil refining companies or industrial machinery producing entities of Africa or Iraq will come under pressure. Trade between regional small and medium-sized enterprises will face less exposure to the US dollar than transactions between major financial institutions of developing economies, be they in Somalia or Turkiye.
It is easier to operate an economic system beneath the American financial and economic radar via small- and medium-sized enterprises. The reason is that their scale is of little interest to the US corporate cyclopes. Also, there exists an entire grey economic zone in most developing countries which is beyond the control and sometimes even understanding of formal west-centric economic institutions. The governments of developing economies must assist these sectors to thrive.
There will always be some problems that will be difficult to overcome in the short-term. At times, even small- and medium-sized businesses will need to import some goods from abroad (especially technological components that are only produced in a few industrialized countries). This will, of necessity, force them to use the US dollar and, hence abide by US regulations and sanctions.
Ditching the US dollar is not just a currency related issue. De-dollarization should be approached as a multifaceted economic strategy. Currency policy, manufacturing, payment systems, economic treaties and logistics must be addressed as a package. Simply refusing to pay or accept US dollars is not a strategic solution. The example of how quickly Turkiye buckled under US pressure and eliminated Russia’s Mir payment system is a good example of this. An economic ecosystem must be created where use of the US dollar is organically disincentivized via natural market mechanisms.
The vast majority of people in the world are poor and most have probably never even held a dollar in their hands. Their lives should not depend on a currency which has minimal direct relevance to their daily transactions.
Governments in developing countries must create an economic system detached from the US dollar, and soon. It is not to suggest that the dollar or the American people are inherently evil. The fact is that the US’s weaponization of its currency makes countries using the dollar vulnerable to Washington’s economic warfare which causes massive collateral damage.